Industry experts anticipate that interest rates for both retail and corporate borrowers will remain stable, with the Reserve Bank expected to maintain the benchmark rate at 6.5 percent during its upcoming bi-monthly monetary policy review, scheduled for later this week. This projection is based on factors such as elevated inflation levels and global considerations.
The Reserve Bank began incrementally raising the policy rate in May 2022, in response to the Russia-Ukraine conflict, eventually reaching 6.5 percent in February of the current year. Since then, the rate has remained unchanged in the last three consecutive bi-monthly monetary policy reviews.
Madan Sabnavis, Chief Economist at Bank of Baroda, suggests that the credit policy is likely to maintain the existing rate structure and policy stance. He notes that while retail inflation is expected to decline in September and October, there are concerns about Kharif output, particularly related to pulses, which could push up prices. Given the downward trajectory of inflation, a rate hike is unlikely, but any reduction in the repo rate may still be some time away.
Karthik Srinivasan, Senior Vice President & Group Head – Financial Sector Ratings at ICRA Limited, also expects the Monetary Policy Committee (MPC) to maintain the status quo on both the policy rate and stance. He points out that the significant liquidity tightening observed in the latter part of September is unlikely to persist, especially with the release of liquidity resulting from the incremental Cash Reserve Ratio (CRR) imposed in the previous policy.
Srinivasan further notes the RBI’s cautious stance regarding the sharp rise in interest rates in emerging economies and its potential impact on capital flows, forex reserves, and the exchange rate.
The Reserve Bank’s mandate from the government is to maintain Consumer Price Index (CPI)-based retail inflation at 4 percent, with a margin of 2 percent on either side.
Rajan Bandelkar, President of the National Real Estate Development Council (NAREDCO), expects the RBI’s accommodative stance to continue during the October MPC meeting, especially considering the ongoing festive season. He emphasizes the need to focus on the real estate sector and highlights the potential positive impact of RBI actions on housing targets.
Interest rates, which began rising in May of the previous year, have stabilized with the RBI keeping the repo rate unchanged at 6.5 percent since February. The next monetary policy review is eagerly awaited, with expectations centered on supporting economic growth, especially during the festive season, while keeping inflation and liquidity in check.
Aman Sarin, Managing Director at Anant Raj Limited, expresses hope that the RBI will maintain its current policies, with a focus on bolstering economic growth, particularly during the festive season.
Parijat Agrawal, head-fixed income at Union Asset Management Company, notes that while headline inflation is expected to cool down in September compared to August, it remains above the RBI’s comfort zone. Global factors, such as rising crude oil prices and bond yields, will likely keep the MPC vigilant about inflation and growth dynamics.
Mandar Pitale, Head of Treasury at SBM Bank India, highlights that overnight rates have consistently been about 15 basis points above the repo rate for an extended period due to tight liquidity conditions, effectively mimicking the impact of a 25 basis point repo rate hike. He also predicts that the MPC will maintain its stance of withdrawing accommodation, as CPI is unlikely to fall below 5 percent for the rest of the fiscal year.
The Monetary Policy Committee is responsible for determining the policy repo rate to achieve the inflation target while considering the growth objective. In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points, followed by further rate hikes in subsequent meetings. The repo rate increased cumulatively by 250 basis points between May 2022 and February 2023.
The MPC comprises three external members and three RBI officials, with Governor Shaktikanta Das at the helm. The other external members are Shashanka Bhide, Ashima Goyal, and Jayanth R. Varma, while the RBI officials on the committee are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).
